With the start of a new year round the corner, what have been the main issues facing the health insurance and protection market over the last 12 months and what has been achieved?
MARKET VIEWS
JAMIE WINTER, Watson Wyatt
The most significant area of focus for us in the last year has been one that will not become fully apparent until next year; that is the tax simplification of pensions and, in particular, its impact on the delivery of group death in service benefits.
Most employers are now aware of the new legislation and many have studied their pension arrangements in detail. As a result, however, there appears to have been a tendency to adopt policies that will result in little change over existing provision after A-Day.
Despite this, we have found that where employers are made aware of the opportunity to redesign their death-in-service benefits, they are interested in doing so. One main driver for this thinking is whether it will be appropriate after A-Day to impose a less tax-efficient dependant's pension benefit on employees when a more tax-efficient lump sum is available.
For Watson Wyatt, the challenge has therefore been to interpret the finer points of the legislative framework and then to establish benefit design solutions that are suitable for clients with widely differing needs. Because an insurance contract often represents part of this, we have also invested significant resource in liaising with insurance providers over the practical methods of delivering these solutions.
The implications of A-Day are significant, but we are now beginning to see outcomes that will provide employers with the flexibility they require to deliver cost-effective and tax-efficient protection solutions in a post A-Day environment. And that is surely to be applauded.
STEPHEN WALKER, AMII
The last year has been one of reassessment and regrouping for the private medical insurance (PMI) industry. The bigger issues by far have revolved around the introduction of Financial Services Authority (FSA) regulation. Insurers and intermediaries have had to adopt and adjust to the "key facts" concept, FSA training/CPD requirements and retail mediation activities return (RMAR).
The key facts concept appears to have been positive for the industry, providing a standardised summary of the policy benefits and general exclusions, plus claims and complaints procedures.
FSA training requirements are no more than should have been in place under General Insurance Standards Council regulation, but it has prompted insurers to be more proactive in providing intermediaries with product training programmes.
RMAR, on the other hand, is causing some concern, particularly for small firms that are finding it necessary to employ and pay for the services of an accountant on a six-monthly basis, despite assurances from the FSA that the RMAR process could be completed without input from an accountant.
The other main issue affecting the PMI market is that of affordability. This has been a major factor in the stagnation of individual PMI sales over the last few years, but is now being addressed by the rush of innovative new products that have appeared over the last 12 months. These new policies are, in many cases, reflecting the changes that are taking place in healthcare provision - and the message regarding the important role the private sector plays in the UK is now being delivered by the recent £1m industry advertising campaign that AMII has been calling for over the last two years. It has been a year of change and 2006 is set to continue in that vein.
TOM BAIGRIE, LifeSearch
2005 was the first year of regulation and saw a dramatic decline in policies sold. That would be fine if it meant that those sold were suddenly truly meeting consumer needs, but the biggest brands in the business realised that the easiest way to deal with regulation is to stay out of its reach. So the first year of regulation has seen a dramatic rise in the proportion of non-advised sales. As nearly every non-advised customer mis-buys, more customers have therefore mis-bought protection policies than ever before.
Elsewhere, worries about critical illness insurance, and now mortgage payment protection insurance, have led to a welcome rise in income protection sales, and there is no doubt that many IFAs are getting a lot better at advising on protection. It is no longer a sideline, though I fear for the future now that direct players have the market in their sights.
As for 2006, if A-Day arrives with non-advisers still growing their market share, I worry it will prove the catalyst they need to price their offering so as to make advised policies seem ridiculously expensive. And that would be the beginning of the end for advised protection sales.
That's why we all need to convince the FSA that those who buy protection without advice lose not only the Ombudsman's protection, but also any chance they had of buying the cover they really need.
CHRIS CUMMINGS, AIFA
14 January 2005 will be remembered as the date statutory regulation was introduced as a result of the Insurance Mediation Directive. Along with mortgage regulation, this brought 14,000 new firms under the FSA's regime. Industry change does not get much bigger than the move from voluntary to statutory regulation and its effects are still working their way through the system.
However, it is never good news for an industry to either become fixated by regulation or simply fall into responding to a regulator's plans, so it is worth taking a look at events that will be beneficial.
For me, the current campaign around the need for advice in protection is of major importance.
We are currently experiencing a settled market for professional indemnity insurance (PII). Compared with the events two years ago, this is a blessing indeed. Unfortunately, the US hurricanes may unsettle our market, just at the time when European directives require intermediaries, of all types, to hold more PII. AIFA is currently lobbying to secure an opt-out of the directive for members, so we should be spared significant extra cost.
As with most things in life, preparation sorts out the best firms from the rest. Those who planned and approached the challenges of 2005 will, I hope, have faired well. With 2006 on the horizon, now is the time to be finalising preparations for an even better year.
